On Our Radar

Should I Buy Gap Insurance if I Lease car?

I'm getting a great deal on leasing a new car with a monthly payment based on a price that is slightly below the car's invoice. I've read your articles, so I know it's better to roll the down payment into the monthly lease payment because I'll never see that money again if the car is totaled early in my lease. But I'm also going to roll in the taxes, title and other fees. Do I need to buy gap insurance to cover myself?

-Katherine

Dear Katherine,

By rolling all the costs associated with the car into the monthly lease payment, it is certainly possible that you would owe more than the car was worth if you experienced a total loss soon after your lease began. Gap insurance -- insurance which bridges the gap between what a car is worth and what you owe at the time of the loss -- would provide you the protection you are seeking. However, you may not need to buy it.

More On This...

In many leases, gap insurance is built into the contract, so check your agreement carefully to determine whether it is included in yours. Keep in mind the term "gap insurance" may not be used in the contract, and a more general term such as "lease coverage" might be used instead.

Continue Reading Below

ADVERTISEMENT

If you don't have gap insurance coverage built into your car lease contract, then you may want to add it to your current auto insurance policy or purchase it separately. A general rule of thumb is that a car loses about 10% of its Manufacturer's Suggested Retail Price the moment you drive it off the lot. So compare your total cost -- including taxes and everything you rolled into the lease -- to the car's MSRP, and see if you have a "gap" from the start.

Keep in mind that the "gap" is constantly fluctuating as you make your monthly payments and as the car depreciates. So you definitely won't need the coverage for your entire lease period. You may only need it for a few months, depending on how good a deal you negotiated.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.